Inflation: a key factor for investment decisions in 2025

Recent inflation data shows that prices are converging towards central banks’ target ranges in many countries worldwide. However, the final phase of this adjustment process is proving to be more complex and slower than anticipated. This scenario will be crucial for investment decisions in 2025, particularly in Fixed Income and Equities.

In the United States, headline inflation closed at 2.9%, marking three consecutive months of increases, while core inflation—which excludes energy and food—declined to 3.2%.

At SURA Investments, we believe that the Federal Reserve (FED) may implement fewer rate cuts than expected. While the market anticipates around two adjustments in 2025, persistent inflation above 2% and economic resilience could limit these reductions.

In this context, all central banks in the region will closely monitor interest rate differentials to maintain competitiveness against the continent’s largest economy while avoiding additional pressures on their currencies.

Mexico:fixed Income Takes Center Stage in 2025

In Mexico, headline inflation closed at 4.2%, exceeding the target range for the fourth consecutive year while slowing its decline compared to 2023. However, core inflation showed a positive trend, reaching 3.7% and settling within the target range.

Given this scenario, we expect Banxico to adopt a more flexible approach in 2025, considering projections indicate that inflation will return to the target range this year, with an expected year-end rate of 3.8%.

Within this context, we favor long-term investment instruments and nominal rates over inflation-linked securities.

Colombia: fixed income and equity opportunities amid challenges

Colombia experienced a significant decline in inflation, dropping from 9.28% to 5.2% in 2024. While it has yet to reach the central bank’s target, the progress is evident.

The Banco de la República has taken a cautious stance, though we anticipate further rate cuts this year if inflation continues to slow. However, key factors such as minimum wage increases and fiscal risks could limit the bank’s flexibility.

Given this landscape, we maintain an optimistic outlook on Fixed Income, with a slight preference for duration, and a positive view on Equities, supported by constructive economic conditions and resilience to political uncertainty.

Peru: a promising environment for local investment

In Peru, annual inflation closed at 1.97%, remaining within the Central Bank’s target range. This decline, along with the interest rate differential with the Fed, paves the way for at least one more rate cut in 2025.

This outlook favors long-term fixed income investments, as well as the local stock market throughout the year.

Chile: equities lead investment opportunities

In Chile, accumulated inflation for 2024 stood at 4.5%, while December saw a monthly variation of -0.2%, below market expectations. This year, factors such as electricity tariff adjustments and labor costs could reignite inflationary pressures.

For this reason, we believe the Central Bank of Chile will maintain a restrictive stance in the short term, although it may adopt a more flexible approach in the second half of the year if conditions allow.

In this scenario, we hold a positive outlook on local equities, as lower monetary policy rates are expected to drive interest in these assets.

On a global scale, the trend toward slowing inflation and potential rate cuts favor fixed-income instruments, particularly longer-duration bonds in emerging markets, where real yields remain attractive. However, equities present selective opportunities in economies with expected monetary adjustments and competitive valuations.

Disclaimer: The opinions and statements expressed herein are subject to change without prior notice. The outcome of any investment decision or financial operation made based on the information provided is the sole responsibility of the client.